ARM sales up by almost half during tough year for chips

ARM Holdings saw full-year 2001 sales climb 45% from £100.7m in 2000 to £146.3m despite the chaos in among the company's semiconductor customers.

Pretax profit was up 42% to £50.3m on the back of growth in licensing, development systems sales and royalties. Unit volumes of chips shipped with ARM cores only grew by 9% over 2000 to 420 million, the company said.

For the fourth quarter of 2001, sales were up 35% on the previous year to £40.2m, rising 7% sequentially.

Warren East, CEO, said: "While unit shipments from our semiconductor partners were slightly lower than in the previous quarter, royalty revenues were up 7% due in part to better royalties on higher-value semiconductor products using ARM9 family core technology.

"ARM9 as a proportion is still pretty small but we have seen a significant shipment in the wireless space."

Royalties for cores used in wireless handsets remained the strongest at 50% of royalty revenues.

East added: "ARM9 was about 50% of our licensing revenue in 2001. So, two to three years out, it will be a significant chunk of our royalty revenue. But there is still a significant number of people doing ARM7 design starts."

The company redesigned its ARM7 core last year to handle the sub-0.18µm processes that the core is now being implemented on by some customers.

In Q4, ARM signed 15 licences out of an annual total of 73. Of the total, more than a third of new licences were from new customers. But only a third of those were for the traditional company-wide licences that ARM insisted on in the past. Of the 27 new licencees, 18 were for per-use deals brought in through the company's foundry programme. It brought the total of per-use licensees to 25 with more than 40 separate designs purchased.

East said the per-use licences were not being bought by customers who, in the absence of its foundry programme might have gone for conventional, per-company licences. The per-use licences are for projects that go through a foundry with an ARM licence and provide a cheaper way of gaining access to the company's processor cores.

"We thought long and hard about how to introduce the foundry business. We wanted the business from it to be purely incremental. So, we developed a different product for a different sector. In a few years, if you look at our licensing, you will see a kink in 2001 [due to the addition of per-use licences]. But it is really aimed at a different type of customer."

The company said its Jazelle core had done well in 2001, with ARM signing up 16 existing customers for the ARM926EJ-S core. However, the company saw the biggest growth from its non-processor core intellectual property, such as peripherals and Java software. It accounted for 7% of business in 2000.

"It was 15% of revenue in 2001. It won't be 30% in 2002 but it will grow steadily," said East.

During 2001, East said ARM shifted engineers away from its consulting programme to work on the non-processor core projects.

"We wanted to grow the non-core licensing and we had to find some resource. So we robbed the consulting organisation."

He said the company does not plan to deliberately grow the consulting operation as more projects come onstream in the semiconductor recovery.

"Margins are not as good as those on product but consulting will grow. We have put a lot of effort into ATAP [ARM's third-party design services programme]. We could have 3000 engineers doing consulting projects. It is a question of what you do in-house," said East.